Intel's patent settlement is cycling its way through the chip-making giant's first quarter earnings results, which contained signs that worldwide IT spending is improving.

Due in part to a $225 million settlement with Intergraph , Intel Tuesday posted a 7 percent dip in revenue to $8.1 billion from the prior quarter. However, the revenues were up by 20 percent from the same, year-ago quarter.

The company said its net income was $1.7 billion, or 26 cents, also down 20 percent sequentially but up by 89 percent over the same quarter last year, at a time when the technology industry was struggling with a drop in spending at the time of the Iraq war.

"Intel's first quarter results showed healthy growth in both revenue and earnings compared to a year ago, led by improvement in worldwide IT spending," Intel's CEO Craig Barrett said in a statment.

Financial analysts estimated that Intel would post revenue of at least $8.16 and earnings of around 27 cents per share. Intel is now paying Intergraph $125 million next month and $25 million in four subsequent payments. But the settlement means that neither company has any further financial obligations under an earlier April 2002 settlement agreement.

"We ramped our 90 nm process into high volume with the launch of several new desktop processors, and plan to substantially increase shipments in the second quarter including our first mobile and server products," Barrett said. "The combination of these products plus new processors and platform innovations coming over the course of this year positions us well for continued growth."

But looking at the past three months, the Intergraph debacle is not solely to blame for Intel's weaker than expected results.

The company said four out of a selected five of its business sectors reported less than stellar sales. Intel Architecture microprocessor units were lower even though the average selling price was slightly higher, for example, and the average selling price excluding Xbox processors was approximately flat. The company also reported that chipset units, motherboard units and connectivity product units were
all lower than anticipated. Some of the problems may be in Intel's
production. Dell and HP have
individually complained in the past few months of insufficient quantities of Intel chips to keep up with their demand.

The bright spot on the financial board was Intel's Flash memory unit including its StrataFlash technology, which rose to $417 million, up by 4.5 percent from the $399 million it took in three months ago.

Intel said it was quite proud of finally getting its 90 nanometer products out the door including its Pentium 4 (code-named Prescott) and its Pentium M (code-named Dothan) and is planning an industry launch sometime in May. The chips were manufactured at the company's 300 mm Fab 11X facility in New Mexico.

Going forward, Intel said it expects revenue in the second quarter to be between $7.6 billion and $8.2 billion. The company estimates its expenses (R&D plus MG&A) in the next three months should hit approximately $2.4 billion, higher than $2.34 billion in the first quarter primarily due to annual wage increases that took effect on April 1. R&D spending is expected to remain at $4.8 billion for the rest of 2004, the company also said.

Intel also said that beginning in the second quarter it will abandon its practice of identifying chips by their speed alone and introduce a new naming convention for its desktop and mobile microprocessors. The processor brand name will be followed by a processor number that represents the technical features of the product including design architecture, clock frequency, cache size, bus speed and other technologies.

The company said it also plans to begin 300 mm production at its new Fab 24 facility in Ireland during the second quarter. Intel also said it began construction of a new chipset assembly and test facility in Chengdu, China along with an upgrade to the company's facility in San Jose, Costa Rica.

Later in the year, Intel will begin to offer select microprocessors and chipsets using new technology that reduces the lead content by as much as 95 percent. In addition, Intel is planning on advancing its Extreme Ultraviolet (EUV) Lithography with the help of companies like Cymer and Media Lario
International.